VAT on food/beverage/preparatoin of beverages

[simfxuk]

Hello all!

Some confusion regarding my company already selling freeze-dried fruit or vegetable powders, fit for direct human food consumption, supplementing meals, home-baking etc, excluding any additives or preservatives. They are marketed as such, without any inferrence to potential uses.

To use the exact same products, but blend and repackage them for the convenience of making a 'smoothie', I think there is a case for this to be standard-rated due to the 'syrups, crystals, powders and flavourings for making any standard-rated drink;' (VFOOD7580).

However, the contents themselves can still seem still zero-rated, containing the complete contents of the foodstuffs i.e. the fibre etc, and they can be used in home-backing, meals etc in just the same way. Many customers buy this product marketed for 'smoothies' to simply enhance their porridge or exercise supplements, for example. Due to the nature of this product being dried-food in a certain packaging, there is limited precedent to go off.

Is the distinction point solely the preparation of the product? Does this include how it is predominantly marketed? If it is marketed differently but packaged the same, does that bear any weight? Because there is a clear distinction from the uses as a 'beverage', due to it actually being natural food and not concentrated juice or pulps lending itself to a singular type of use.

In Unilever Bestfoods UK Ltd (V.20016), the tribunal noted the lack of water content as an important factor. This product in question has lost 99.9% of its water content.

But the assumed finished product would pass the beverage test averred to in Sunjuice (LON/92/73Y) and Tropicana (LON/92/234Z).

Finally, the overarching guidelines 'Food products (VAT Notice 701/14)', states 'juice and juice concentrates (Beverages or products for the preparation of beverages)' and 'Pulps that are to be made into beverages, for example, fruit and vegetable smoothies' as standard-rated. However freeze-dried powders are not pulps nor juice concentrates, essentially due to their nature that they are classified as whole foodstuffs.

 

[lesvatadvice]

You have obviously done some reading on the subject. That can be helpful, but also confusing, as Tax Tribunals are not perfectly consistent!
You can rely on your own research and follow your conclusion (assuming you have one).
Or, ask a specialist to provide a ruling. That will involve some cost.
Or, ask HMRC - but HMRC will almost certainly say it is standard rated! That is their default position.

 

[UK Contractor Accountant]

Phoenix Foods Ltd [2018] TC 06296​

The First-tier Tribunal (FTT) allowed the appeal against HMRCʼs decision that zero-rating did not apply to a supply of bicarbonate of soda, when it was sold as a baking ingredient. The item was found to be ‘food of a kind used for human consumption’, rather than a cleaning product.

Key fact underlined:
However, the FTT found as a fact, that Phoenixʼs supplies of bicarbonate of soda, which were the subject of the appeal, were intended to be used primarily as a baking ingredient. The sales were made to leading supermarkets, although the packaging of the Belbake product suggested that there may be other uses for the product, the packaging was consistent with the primary intended use of the bicarbonate of soda being a culinary ingredient. It was likely that the product would have ordered by the buyers at the supermarket, who were responsible for the purchase of home baking goods for sale in the home baking section (para. 28 of the decision).

​

 

[DontAsk]

In the case of bicarb there is a very clear difference between food grade (smaller quantity, more expensive) and everything else (larger quantities, cheaper).

One is food grade and clearly intended as such. The other is not food grade and could be contaminated with who knows what.

 

[UK Contractor Accountant]

Salt is another good example of multiple use product.

salt has various uses and there is little difference, other than in terms of purity and particle size, between table salt and salt used for other purposes, e.g. dishwasher salt.

HMRC accept that a supply of salt is zero-rated when it is sold for culinary use, but not otherwise.

 

[simfxuk]

Many thanks for the great replies guys.

So if I am reading this correctly, I think we still have an issue of "culinary ingredient" vs. "product for the preparation of a smoothie".

The reason I ask, is this determines if I should deregister for VAT for the first batch of sales. If I am confident in the zero-rating, however, life becomes easier and I can stay registered

 

[DWS]

Many thanks for the great replies guys.

So if I am reading this correctly, I think we still have an issue of "culinary ingredient" vs. "product for the preparation of a smoothie".

The reason I ask, is this determines if I should deregister for VAT for the first batch of sales. If I am confident in the zero-rating, however, life becomes easier and I can stay registered

So the best way seems to to follow the advice by Les and pay for a VAT specialist to give you a ruling

 

[UK Contractor Accountant]

VFOOD7600 - Excepted items: beverages: fruit juice - HMRC internal manual - GOV.UK

www.gov.uk

 

[simfxuk]

...hmrc-internal-manuals/vat-food/vfood7600

Thanks, I did study this a lot, to summarise it was 'pureed fruit for beverages' vs. 'pureed fruit for culinary'. But this infers there are no other uses for the beverage kind; it is bottled and ready to consume. My product is a powder and in storage until the customer wants to use it.

So the best way seems to to follow the advice by Les and pay for a VAT specialist to give you a ruling

Many thanks, do we have any recommendations from this site?

 

[Gyumri]

Have you also looked here, as your product seems to be a supply in the course of catering in which case it is standard rating.

Value Added Tax Act 1994

An Act to consolidate the enactments relating to value added tax, including certain enactments relating to VAT tribunals.

www.legislation.gov.uk

 

[simfxuk]

Thanks Gyumri, however it will be sold online, so not in the course of catering.

Perhaps can I ask a more broad question for this fine community. Is it the intentional use of the product which bears the VAT classification? Example, two products exactly the same, one packaged X and one Y, does the packaging define intent therefore define the VAT rating?